Vietnamese or Foreign Bank ‒ Which Is the Better for Your Business?

While foreign banking institutions had branches and representative offices in Vietnam starting in the late ‘80s, much of the landscape consisted of the State Bank of Vietnam (SBV), which originally operated as both a private and commercial bank.

In 1990, the SBV produced four offshoot state-owned commercial banks (SOCBs), each focusing on particular sectors of business: Vietinbank took care of the industrial business, Agribank focused on the agricultural money, international trade was taken on by Vietcombank and infrastructure development was handled by BIDV.

The World’s Banks Beckon

When Vietnam joined the WTO in 2007, foreign credit unions could begin to apply for 100 percent ownership in Vietnam, an attractive prospect for countries like South Korea, which was (and still is) investing billions of dollars in Vietnam every year. As Maxfield Brown, Editorial and Research Specialist at Dezan Shira & Associates told us,

“The big foreign banks that are in the country, they’re primarily focused on the commercial perspective on the biggest investors. They want to make sure that they’re targeting Nike when it comes into the country.”

Right now there are seven foreign banks operating independently in Vietnam:

As more multinational companies enter the market, more foreign banks are vying to be the eighth, Citibank in particular.

However, there are many more foreign banks that operate as representative branches – 49, according to the SBV’s website – and they offer most of the same services, depending on your needs.

Foreign banks are definitely a cause for worry for domestic banks, but not as much as you might think. For one thing, local banks know the market better than any foreign bank could, and name recognition goes a long way in Vietnam.

This has prompted some foreign banks to become strategic investors instead of direct competitors. This option is becoming ever more attractive as the investment cap has been increased from 15 percent to 20 percent thanks to the recent adoption of Decree 01.

Japan, which has no independent bank in Vietnam but is the second-largest foreign direct investment (FDI) presence, is the best example of this. Brown considers this a long-term plan, and a good one at that:

“Over time the threshold for investments is going to go up, and maybe 10 or 15 years down the line they might own those banks outright.”

But What About You?

So, say you’re opening a business and you’re trying to find the right bank that suits your fledgling company’s needs. You might think that a foreign-owned bank, which has more capital, a better reputation and international experience than a Vietnamese bank, is the way to go. Well, you’re probably wrong.

It all depends on the needs of your business. If you control a large company with sales overseas, sure, a foreign bank is probably your best bet. They’ll offer you more international coverage and provide easier ways to ship money back to your home base, if it happens to be abroad.

However, if you’re looking to open a small or medium-sized enterprise (SME) in Vietnam, a domestic bank is probably a better choice. As Brown reasons,

“If you don’t need to send your money out of the country all the time, and if you’re perfectly happy growing your business domestically, then Vietnamese banks are going to be much more interested in retaining your business.”

You might receive more attention than you would at a larger, international bank, since these banks are often subject to reporting requirements in their home markets that can slow the delivery of key services in Vietnam. Here are Asiamoney’s Cash Management Poll 2016 winners for the top banks for small businesses, both foreign and domestic.